Cash Crunch Trips Up L.A. Marathon Owner

Devine Racing, which in 2004 paid $15 million to acquire the Los Angeles Marathon, had grand plans to buy other events and turn the company into a prosperous operator of major road races.

The company did add races in Las Vegas and Salt Lake City. But its plans faded this summer when Devine Racing laid off half a dozen corporate staffers at its Chicago headquarters office, including some experienced sports marketing executives who were drawing six-figure salaries.

The layoffs followed a swirl of rumors in the Los Angeles running community that a cash crunch had stalled payments to companies that provide goods and services to the L.A. Marathon. Devine Racing founder and Chairman Chris Devine acknowledged recently that the Los Angeles race had suffered cash-flow problems, but he maintained that bills are being paid and that the annual marathon remains on solid financial footing.

Devine tied the cash crunch to his admittedly ambitious plan to acquire additional marathons around the country.

"The combination of the added [hiring] costs and the lack of acquisitions caused three or four months of real tight cash flow, a bind from which we are emerging," he said.

Devine said that it was harder than he expected to buy other races. "The primary reason was that they didn't have the profitability to justify an acquisition, or the bookkeeping and record-keeping we looked at was suspect," he said.

In theory, it makes financial sense to have one company operate numerous races around the country. But most marathons turn out to be a labor of love heavily dependent on local volunteers who are passionate about their event. San Diego's Elite Racing has established an identifiable brand for its races in San Diego, San Jose, Phoenix, Virginia Beach and Nashville by incorporating "Rock 'n' Roll" into race titles. But expanding the business has been a long process, according to founder and Chief Executive Tim Murphy.

'We've been at it for 15 years and we're just now feeling the economies of scale," Murphy said.

He added that Devine talked to him about selling his company. "Consolidation of races is a good idea, but the way Devine went about it was just wrong," Murphy said. "They had the money, but they didn't have the savvy."

Devine brushed off criticism and said he still expects to make some acquisitions in the next six months.